Conflict over industrial personal property tax exemptions and confusion over who should get such breaks has spurred thousands of court and administrative appeals and moved the elimination of the personal property tax to the top of the agenda for many business and political leaders
Taxing authorities have said only property used for manufacturing processing (classified as industrial personal property) is eligible for the up to 24-mill personal property tax exemption and 35 percent state refundable credit. The law is intended to promote manufacturing in the state over other commercial ventures, which are eligible for half as much tax relief at up to 12 mills of exemptions, said Kelli Sobel, executive director of the State Tax Commission.
Lawmakers approved the exemption with the assumption that assessors throughout the state had the same uniform standards for how they classified properties. But as appeals over classification flooded in, it soon became clear that some assessors defined industrial property by its “highest and best use” when only personal property used for manufacturing processing should actually get the tax break, Ms. Sobel said.
To try to clear up what she called “a murky area” in classifying property accurately, the department on December 7 issued a bulletin to guide assessors, including a definition of “manufacturing and processing.”
Mike Johnston, vice president for government affairs at the Michigan Manufacturers Association, said the bulletin “goes a long way toward clearing up a complicated issue.
“But the complexity of the (Michigan Business Tax) and personal property tax exemptions has created a train wreck for Michigan,” he said.
Lt. Governor-elect Brian Calley (R-Portland) agreed, saying a lack of clarity in the law creates an uncompetitive environment in Michigan compared with other states; that’s why the elimination of both the MBT and the personal property tax are the number one and two tax priorities of the new governor’s administration, he said.
“Having uniformity across the state can easily make things more predictable for companies and would help them make business decisions such as where to expand,” he said, adding that Michigan is one of the only states to still tax business property, creating an unfavorable environment that taxes the businesses’ physical presence in the state, unlike a flat corporate tax based on profits.
Mr. Calley and others said until an overhaul is finished, it is extremely important that the Legislature try again at this session’s failed attempt to pass bills introduced in the Senate that would provide better definitions for different types of personal property.
He added that new laws also must create a clear right to appeal in courts for businesses.
“The judicial branch is the interpreter of the laws and the final say should rest with it,” he said.
Jim Holcomb of the Michigan Chamber of Commerce agreed, saying even though the administrative appeals process is usually fair, the Department of Treasury has a vested interest in not allowing exemptions because it depends on the tax revenue involved in the appeal.
“The tax commission does a good job, but we need someone outside the system to conduct a fair and impartial hearing,” he said.
Whether the law guarantees a right to appeal in courts or declares that the ruling of the tax tribunal is final is an issue the Supreme Court will tackle in January.
While it awaits the court decision, the Department of Treasury has withdrawn 10,331 appeals it filed on behalf of the tax commission, worth about $20 million in tax revenue, to reclassify property from industrial to commercial.
“The law is the law,” said Ms. Sobel. “It guarantees the right to appeal, but not in the courts. We believe the tax commission has the final say.”
But the outcome of thousands of cases filed by taxpayers, at least 3,000 from 2009 and 2010 alone, is still dependent on whether the high court reverses the Court of Appeals decision and agrees that businesses should have their say in court.
Appeals are up from an average of 100 per year prior to MBT passage in 2007, to an estimated 1,800 cases filed in 2009 and 1,200 in 2010, not including any appeals in Detroit.
While many of the appeals have not made their way passed the tribunal and into the courts, a fair share have, with about 60 cases pending in the Court of Appeals, awaiting the high court decision, up from about 17 cases in the Court of Appeals in 2008.
If the Supreme Court rules there is no right to appeal, then presumably the appellate decision to stop the buck at administrative rulings will stand. However, the high court could order the Court of Appeals to evaluate the cases for their merit or could do so on its own, Ms. Sobel said.
One possible outcome that would be contrary to the department’s reading of the law and to legislative intent, she said, is that either panel could rule that any real property on industrial land should be considered industrial.
While that interpretation might help classify the increasing amount of property intended for manufacturing, but no longer operational in this economy, it would also unfairly create a benefit to businesses involved in a wide array of commercial ventures just because they are located in an industrial area, Ms. Sobel said.
Terry Stanton, spokesperson for the department, said applying the law uniformly really does come down to fairness.
“The goal is that no one is benefiting from a break they shouldn’t be getting,” he said.
If you have any questions, please feel free to contact Mike Nystrom at mikenystrom@mi-ita.com, or Keith Ledbetter at keithledbetter@mi-ita.com or call the MITA office at (517)347-8336.
